FINANCIAL ACCOUNTING

&
REPORTING
(Fundamentals)

Chapter 5: Books of Accounts & Double-

entry System (FAR by: Millan)
 Chapter 5
Books of Accounts and Double-entry
System
Learning Ojectives
1. Identify the uses of the two books of
accounts.
2. Illustrate the format of general and special
journals.
3. Illustrate the format of general and subsidiary
ledgers.
 The Books of Accounts

1. Journal (General and Special)

2. Ledger (General and Subsidiary)
 Journal

The journal, also called the “book of original

entries,” is the accounting record where business
transactions are first recorded.
1. Special Journal – is used to record transactions
with similar nature (e.g., Sales journal,
Purchases journal, Cash receipts journal, and
Cash disbursements journal)
2. General Journal – All other transactions that
cannot be recorded in the special journals are
recorded in the general journal.
 Ledger

• The ledger is used to classify the effects of

business transactions on the accounts. It is
also called the “book of final entries.”
1. General ledger – contains all the accounts
appearing in the trial balance.
2. Subsidiary ledger – provides a breakdown
of the balances of controlling accounts.
Format of the General Journal
Formats of the Ledgers
 Double-entry System
• Concept of duality – each transaction is
recorded in two parts – debit and credit
• Concept of equilibrium – each transaction is
recorded in terms of equal debits and
credits.
Normal balances of accounts
Rules of Debits and Credits
 Contra and Adjunct accounts
• Contra accounts are presented in the
financial statements as deduction to their
related accounts.
• Adjunct accounts are presented in the
financial statements as addition to their
related accounts.
 Chapter 6
Business Transactions & Their Analysis
Learning Objectives
1. Describe the nature and give examples of
business transactions.
2. Identify the different types of business
documents.
3. Analyze common business transactions using
the rules of debit and credit.
 Steps in the Accounting cycle

1. Identifying and analyzing

2. Journalizing
3. Posting
4. Unadjusted trial balance
5. Adjusting entries
6. Adjusted trial balance (and/or Worksheet)
7. Financial statements
8. Closing entries
9. Post-closing trial balance
10. Reversing entries
 Identifying and analyzing transactions and events

• Only accountable events are recorded.

Accountable events are those that affect the
assets, liabilities, equity, income or expenses
of the business.
• Accountable events are normally identified
from source documents, such as sales
invoice, official receipts, delivery receipts,
and the like.
 Types of Events
1. External events – are transactions that
involve the business and another external
party.
2. Internal events – are events that do not
involve an external party.
 Journalizing
Journalizing refers to recording an identified
accountable event in the journal by means of a
journal entry.
 Simple and Compound journal entries
• Simple journal entry – contains a single debit
and a single credit element.
• Compound journal entry – contains two or
more debits or credits.
END